Coach-owner Tapestry shares jump after earnings beat, but Kate Spade sales still weak

The owner of the Kate Spade and Coach handbag brands on Tuesday reported fiscal first-quarter earnings that beat analyst estimates, but sales fell short due to weakness at Kate Spade.

Tapestry also gave a fresh outlook for fiscal 2020. The company said it expects its sales to rise at a low-single digit pace, while earnings per share are estimated to be about flat compared with the prior year.

Its shares shot up more than 6% in premarket trading on the news. The stock was last up about 4%, having fallen more than 21% this year since Monday’s market close.

Here’s how Tapestry performed for its first quarter compared to what analysts were expecting, based on Refinitiv data:

• Earnings per share: 40 cents, vs. 37 cents expected
• Revenue: $1.358 billion, vs. $1.371 billion expected

Net income fell to $20 million, or 7 cents per share, during the period ended Sept. 28, from $122.3 million, or 42 cents per share, a year ago.

Excluding $76 million in charges related to a change in how it accounts for leases, Tapestry earned 40 cents per share, 3 cents ahead of analysts’ forecasts. 

Net sales fell to $1.36 billion from $1.38 billion a year ago, missing expectations for $1.37 billion.

Tapestry in September replaced CEO Victor Luis with Chairman Jide Zeitlin. Zeitlin said in a statement Tuesday that Kate Spade’s decline was “in line with expectations, reflecting the product and merchandising challenges … previously identified.”

Zeitlin had told CNBC when the transition was announced that one of his primary initiatives as CEO is to work on “core growth drivers,” one of those being Kate Spade. He has said Kate Spade remains a $2 billion or larger opportunity for Tapestry.

During the quarter, global same-store sales at Kate Spade dropped 16%, while they were up 1% at Coach.

Tapestry has been hurt as its brands, including Kate Spade, appear in excess at off-price shops, thus discouraging consumers to buy those same goods at full price. Tapestry also owns Stuart Weitzman.

Tapestry has a market cap of about $7.6 billion, compared to Michael Kors’ owner Capri Holdings‘ $5 billion. Rival Capri’s stock is down 12% since the start of the year.